Question - Five years ago Dr. Paxton purchased his personal residence for $250,000. This year Dr. Paxton found a larger home that he acquired for his personal residence. Unfortunately he cannot sell his original residence and recover his purchase price of $250,000 because it was appraised at $180,000. Instead of continuing to try to sell the original residence, Dr. Paxton converted it to rental property.
What is the basis for cost recovery of the rental property?
How is the $70,000 decline in value of the property treated?